PubMatic (NASDAQ:PUBM) Q2 Sales Beat Estimates But Quarterly Guidance Underwhelms

Radek Strnad /
2023/08/08 4:24 pm EDT

Programmatic advertising platform Pubmatic (NASDAQ: PUBM) reported Q2 FY2023 results topping analysts' expectations, with revenue flat year on year at $63.3 million. However, next quarter's revenue guidance of $59.5 million was less impressive, coming in 10.3% below analysts' estimates. PubMatic made a GAAP loss of $5.72 million, down from its profit of $7.82 million in the same quarter last year.

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PubMatic (PUBM) Q2 FY2023 Highlights:

  • Revenue: $63.3 million vs analyst estimates of $59.8 million (5.92% beat)
  • EPS (non-GAAP): $0.02 vs analyst estimates of -$0.01 ($0.03 beat)
  • Revenue Guidance for Q3 2023 is $59.5 million at the midpoint, below analyst estimates of $66.3 million
  • Free Cash Flow of $10.8 million, up 102% from the previous quarter
  • Net Revenue Retention Rate: 100%, down from 105% in the previous quarter
  • Gross Margin (GAAP): 60.4%, down from 69.9% in the same quarter last year

“Our deep customer relationships, alongside the strength and value of the PubMatic platform, drove revenue out-performance in the second quarter. As the market consolidates, we are in a strong position despite macro headwinds,” said Rajeev Goel, co-founder and CEO at PubMatic.

Founded in 2006, as an online ad platform focused on ad sellers, Pubmatic (NASDAQ: PUBM) is a fully integrated cloud-based programmatic advertising platform.

The digital advertising market is large, growing and becoming more diverse, both in terms of audiences and media. This as a result drives a growing need for a software that enables advertisers to use data to automate and optimize ad placements.

Sales Growth

As you can see below, PubMatic's revenue growth has been mediocre over the last two years, growing from $49.7 million in Q2 FY2021 to $63.3 million this quarter.

PubMatic Total Revenue

PubMatic's quarterly revenue was only up 0.47% year on year, which might disappoint some shareholders. However, its revenue increased $7.92 million quarter on quarter, a strong improvement from the $18.9 million decrease in Q1 2023. This is a sign of acceleration of growth and very nice to see indeed.

Next quarter, PubMatic is guiding for a 7.75% year-on-year revenue decline to $59.5 million, a further deceleration from the 11% year-on-year decrease it recorded in the same quarter last year. Ahead of the earnings results announcement, the analysts covering the company were expecting sales to grow 9.85% over the next 12 months.

The pandemic fundamentally changed several consumer habits. There is a founder-led company that is massively benefiting from this shift. The business has grown astonishingly fast, with 40%+ free cash flow margins. Its fundamentals are undoubtedly best-in-class. Still, the total addressable market is so big that the company has room to grow many times in size. You can find it on our platform for free.

Product Success

One of the best parts about the software-as-a-service business model (and a reason why SaaS companies trade at such high valuation multiples) is that customers typically spend more on a company's products and services over time.

PubMatic Net Revenue Retention Rate

PubMatic's net revenue retention rate, a key performance metric measuring how much money existing customers from a year ago are spending today, was 100% in Q2. This means that even if PubMatic didn't win any new customers over the last 12 months, it would've grown its revenue by 0%.

Despite falling over the last year, PubMatic still has an adequate net retention rate, showing us that it generally keeps customers but lags behind the best SaaS businesses, which routinely post net retention rates of 120%+.

Key Takeaways from PubMatic's Q2 Results

Sporting a market capitalization of $997.7 million, PubMatic is among smaller companies, but its more than $170.9 million in cash on hand and positive free cash flow over the last 12 months puts it in an attractive position to invest in growth.

We were impressed by PubMatic's strong gross margin improvement and revenue beat this quarter, but its net revenue retention rate continues to move lower. Furthermore, next quarter's revenue and adjusted EBITDA guidance came in below Wall Street's expectations. Overall, this was a mediocre quarter for PubMatic. The company is down 1.29% on the results and currently trades at $18.3 per share.

PubMatic may have had a tough quarter, but does that actually create an opportunity to invest right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.

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The author has no position in any of the stocks mentioned in this report.